I Saw Miles and Miles of Texas - Part 4: Texas Natural Gas Pipeline Flows, Capacity and Pricing

As natural gas exports to Mexico continue to rise and as construction proceeds on Texas liquefaction/LNG export terminals, the day is approaching when Texas will flip from being a net producing region to being (with exports) a net demand region. Fortunately, supplies from elsewhere are readily available to meet that demand - sourced from the Marcellus/Utica and moving on new and reversed pipeline capacity to the Gulf Coast. A good portion of that gas must traverse “miles and miles of Texas” to meet the burgeoning export demand at the Agua Dulce hub near Corpus Christi - a location that is emerging as a key pricing point for the South Texas gas market.

But a potential problem is looming: there may not be enough pipeline capacity available to meet that demand, with important implications for South Texas prices, flows and natural gas export volumes. The average annual basis at Agua Dulce could increase to as much as $0.10/MMbtu above Henry Hub in 2020 from its historical level $0.02/MMbtu to $0.05/MMbtu below Henry. Those considerations are front and center in this RBN Drill Down Report, the fourth and final part of our Drill Down report series titled “Miles and Miles of Texas.”

Key take-aways from the report include:

Increasing exports to Mexico and to overseas markets as LNG will flip Texas from being a net producing region to being (with exports) a net demand region.

Much of the incremental supply to meet burgeoning Texas demand will come from the Marcellus/Utica region, and will need to traverse "miles and miles of Texas" to the Agua Dulce hub near Corpus Christi.

There may not be enough pipeline capacity available to meet that demand, though, with important implications for South Texas prices, flows and natural gas export volumes.

The average annual basis at Agua Dulce could increase to as much as $0.10/MMbtu above Henry Hub in 2020.

If capacity constraints into the Agua Dulce hub are relieved, then the prospects for a major shift in basis diminish significantly.

It is a fascinating reversal of fortunes for what was for years a distant backwater of the natural gas market. South Texas is becoming one of the most attractive destination markets for natural gas in North America.

I Saw Miles and Miles of Texas – Part 4: Texas Natural Gas Pipeline Flows, Capacity and Pricing is the first in RBN Energy’s 2017 Drill Down report series, a suite of monthly reports covering many of the key issues expected to impact the markets for crude oil, natural gas and natural gas liquids. Drill Down reports are part of RBN Backstage Pass™ premium resources that also include Blog Archive Access, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. By subscribing to RBN’s Backstage Pass™ Premium Services, you plug into our network and get direct access to our premium resources.